Subway's Move to the Asia-Pacific Market

By: Kenneth Brown Michael Forney Michelle Kordahi James O’Malley

Company History: Subway prides itself in being a healthy fast food chain offering a variety of sandwiches and subs Founded in the summer of 1965, by Fred DeLuca and investor Dr. Buck Deluca was trying to make some money for college As a growth strategy, and in an effort to increase profits, they embarked on the idea of franchising their business Subway locations grew exponentially

Subway prides itself in being a healthy fast food chain offering a variety of sandwiches and subs

Founded in the summer of 1965, by Fred DeLuca and investor Dr. Buck

Deluca was trying to make some money for college

As a growth strategy, and in an effort to increase profits, they embarked on the idea of franchising their business

Subway locations grew exponentially

Strategy: Formulating a unique value proposition Targeting an underserved customer segment Structuring an aggressive franchising model Expanding internationally

Formulating a unique value proposition

Targeting an underserved customer segment

Structuring an aggressive franchising model

Expanding internationally

“ Eat Fresh” Slogan Higher perceived value against competition Custom sandwiches tailored to customer Appeal to young professionals Marketing :

“ Eat Fresh”

Slogan

Higher perceived value against competition

Custom sandwiches tailored to customer

Appeal to young professionals

Franchising: Low start up costs Less equipment is needed Countertop, oven, refrigerator, and microwave Small Area is needed Real-estate costs are low Lowered operating costs which therefore raise margins $12,000 vs $45,000 for McDonalds Makes it appealing to investors

Low start up costs

Less equipment is needed

Countertop, oven, refrigerator, and microwave

Small Area is needed

Real-estate costs are low

Lowered operating costs which therefore raise margins

$12,000 vs $45,000 for McDonalds

Makes it appealing to investors

International Growth: 1 st entered into world market in 1984 in the Middle East nation of Bahrain International expansion approach at the time was… “ If you like Subway, you think it’s a good thing, and you think it would work in your country, then we’ll teach you the concept and how it works and you go make it work in your country.” Used development agents to recruit franchises and assist in growth Core menu was left unchanged, with exception of religious and cultural consideration They believe the sandwiches will catch on and overcome cultural barriers

1 st entered into world market in 1984 in the Middle East nation of Bahrain

International expansion approach at the time was…

“ If you like Subway, you think it’s a good thing, and you think it would work in your country, then we’ll teach you the concept and how it works and you go make it work in your country.”

Used development agents to recruit franchises and assist in growth

Core menu was left unchanged, with exception of religious and cultural consideration

They believe the sandwiches will catch on and overcome cultural barriers

“ In summary, Subway’s success consisted of a strong brand based on a unique value proposition aimed at a dissatisfied target segment. The company’s low-cost franchising strategy has allowed Subway to flourish both domestically and overseas.”

“ In summary, Subway’s success consisted of a strong brand based on a unique value proposition aimed at a dissatisfied target segment. The company’s low-cost franchising strategy has allowed Subway to flourish both domestically and overseas.”

How important is Asia for Subway? In Asia there are various cultures, religions and languages This allows for a diverse, flexible, and innovative market Discretionary income is rising Major opportunity for fast-food in the growing middle class Allows Subway to zone in on market niche

In Asia there are various cultures, religions and languages

This allows for a diverse, flexible, and innovative market

Discretionary income is rising

Major opportunity for fast-food in the growing middle class

Allows Subway to zone in on market niche

Market Opportunity Facts: The Asia-Pacific fast food market has experienced 11.7 percent growth between 1999 and 2003. The market was worth $77.9 billion in 2003, an increase of 55.8 percent since 1999. This growth is considerably stronger than the overall global market and is driven by the large-scale expansion of the Chinese market 83 % In terms of value, Asia-Pacific represented 28.3 % of the global market in revenues for fast food in 2003.

The Asia-Pacific fast food market has experienced 11.7 percent growth between 1999 and 2003.

The market was worth $77.9 billion in 2003, an increase of 55.8 percent since 1999.

This growth is considerably stronger than the overall global market and is driven by the large-scale expansion of the Chinese market 83 %

In terms of value, Asia-Pacific represented 28.3 % of the global market in revenues for fast food in 2003.

Competitors: McDonalds KFC Burger King Hardee’s Wendy’s Popeye’s

McDonalds

KFC

Burger King

Hardee’s

Wendy’s

Popeye’s

Major Drivers of Global Fast Food Market Growth Traditional : Convenience, price, and value. Also a place for youth to socialize. New Drivers : Nutritional value and diversity of options

Traditional : Convenience, price, and value. Also a place for youth to socialize.

New Drivers : Nutritional value and diversity of options

Issues and Concerns in the Global Fast Food Market Reputation as a decent place to eat Ethical consideration for local venues – fast food can put them out of business Many fast food places seen as American or Western icons – Can be dangerous in Middle East where protests and demonstrations are carried out at places like McDonalds

Reputation as a decent place to eat

Ethical consideration for local venues – fast food can put them out of business

Many fast food places seen as American or Western icons – Can be dangerous in Middle East where protests and demonstrations are carried out at places like McDonalds

Impact of Global Drivers and Concerns on the Fast Food market in Asia All of the global concerns are particularly present in Asia Largely stratified social class makes location choice difficult Many Asians eat with gloves or don’t eat part of food they touch Majority of Asian population (83%) lives in rural areas and do not have convenient access to fast food venues

All of the global concerns are particularly present in Asia

Largely stratified social class makes location choice difficult

Many Asians eat with gloves or don’t eat part of food they touch

Majority of Asian population (83%) lives in rural areas and do not have convenient access to fast food venues

Specific Regional Drivers and Concerns Main drivers in Asia : Type of cuisine, price, convenient location, good hygiene standards, and health. Concerns in Asia : Hygiene and nutrition are two of the largest concerns in Asia Massive social stratification means many cannot afford even fast food In some poor areas, family-owned restaurants are the only way people can make a living

Main drivers in Asia : Type of cuisine, price, convenient location, good hygiene standards, and health.

Concerns in Asia : Hygiene and nutrition are two of the largest concerns in Asia

Massive social stratification means many cannot afford even fast food

In some poor areas, family-owned restaurants are the only way people can make a living

Market Trends and Consumption Behavior Towards Fast Food in Asia Reception to fast food is large in many developed Asian economies and growing in others Trends favor places that offer a “whole package” which includes all of the regional drivers (Type of cuisine, price, convenient location, good hygiene standards, and health) Obesity in Asia is causing a push toward healthy low-calorie, low-fat alternatives to typical fast food (burgers) Eating at Western style places perceived as high class Fast food venues provide a place for many people to conveniently sit down and eat together. Eating together is very popular in Asia.

Reception to fast food is large in many developed Asian economies and growing in others

Trends favor places that offer a “whole package” which includes all of the regional drivers (Type of cuisine, price, convenient location, good hygiene standards, and health)

Obesity in Asia is causing a push toward healthy low-calorie, low-fat alternatives to typical fast food (burgers)

Eating at Western style places perceived as high class

Fast food venues provide a place for many people to conveniently sit down and eat together. Eating together is very popular in Asia.

Asia Important as a Market of Interest for Fast Food Yes, absolutely The Asian-Pacific region represented 28.3% of global revenue for fast food industry

Yes, absolutely

The Asian-Pacific region represented 28.3% of global revenue for fast food industry

Market Opportunities in Asia

Questions? What countries do you believe to be the best opportunity for Subway? In terms of demographics who do you believe Subway should target?

What countries do you believe to be the best opportunity for Subway?

In terms of demographics who do you believe Subway should target?

Best Countries in Particular in Asia China, India, and South Korea Each country is not yet a large consumer of fast food Subway can still capitalize on first mover approach in these areas as economic growth is starting to become rapid In the coming years, many people will be able to access and afford fast food in these currently lagging countries.

China, India, and South Korea

Each country is not yet a large consumer of fast food

Subway can still capitalize on first mover approach in these areas as economic growth is starting to become rapid

In the coming years, many people will be able to access and afford fast food in these currently lagging countries.

CHINA Third largest economy at $10 trillion dollars 97 % of the population eat at fast food restaurants The demand for fast food increases with the economy, more disposable income Drive-thru’s are increasingly popular, as well as eat-in restaurants Chinese people don’t like to eat with their hands; introduce a subway salad bread bowl

CHINA

Third largest economy at $10 trillion dollars

97 % of the population eat at fast food restaurants

The demand for fast food increases with the economy, more disposable income

Drive-thru’s are increasingly popular, as well as eat-in restaurants

Chinese people don’t like to eat with their hands; introduce a subway salad bread bowl

INDIA Exponentially increasing middle class Fast food market growing between 15 and 20% annually Indian food is very specific, needs adaptation between chicken, lamb, and fish Very high competition, but no real competitors in terms of sandwiches

INDIA

Exponentially increasing middle class

Fast food market growing between 15 and 20% annually

Indian food is very specific, needs adaptation between chicken, lamb, and fish

Very high competition, but no real competitors in terms of sandwiches

KOREA Fast Food market is growing 30% annually Increasing demand for healthy options Sandwich sales doubled in 2003 Young professionals and students are interested in healthy options and low calories

KOREA

Fast Food market is growing 30% annually

Increasing demand for healthy options

Sandwich sales doubled in 2003

Young professionals and students are interested in healthy options and low calories

Recommendations: Take advice from franchisees Continue healthy eating strategy Tailor menu to different national markets (localize) Offer new items for local tastes

Take advice from franchisees

Continue healthy eating strategy

Tailor menu to different national markets (localize)

Offer new items for local tastes

Recommendations: Increase seating to be in line with Asian culture Add breakfast items Promote as customizable, healthy sandwich Stick with core competencies for now Price according to country’s discretionary income

Increase seating to be in line with Asian culture

Add breakfast items

Promote as customizable, healthy sandwich

Stick with core competencies for now

Price according to country’s discretionary income

Additional Questions?

Additional Questions?

Thank you! The End…

Thank you!

The End…